Governor Patrick Njoroge also told a senate committee that the central bank would improve banking supervision after the mid-sized lender Imperial Bank was taken into receivership last month because of fraud, which rattled investors and the public.

In recent weeks, the central bank has used a mixture of shilling mop-up operations and dollar sales to support the weakening shilling, which has been hit by global dollar strength, Kenya's widening trade gap and a hefty budget deficit.

"The tight liquidity conditions experienced in September and October have eased as reflected in the decline in the interbank rates," Njoroge told a committee of senators, adding that the central bank had no plans to start another tightening cycle.

The governor said investors now had confidence the government was "on top of its borrowing plan ... In that sense there is much more credibility in terms of interest rates remaining where they are."

The shilling has lost about 11 percent of it value since the start of the year, but is off its September lows. The governor said the central bank had helped stabilise the currency and prices.

"Price stability will provide the necessary environment for a sustainable growth in the long term," Njoroge said.

When Imperial Bank was taken into receivership, tight liquidity conditions exacerbated challenges for smaller banks seeking funds, although that issue eased when it became clear at fraud Imperial Bank was not a systemic banking issue.

The governor said the central bank would increase the numbers of supervision staff and their skills. He also said reopening Imperial Bank would boost public confidence, without giving a timeline.

To avoid a funding squeeze for smaller banks in future, he said the central bank would encourage sharing liquidity in the market, which he said was "lopsided" towards four big banks.

ADVERTISING

He did not name them, but the biggest Kenyan banks include Kenya Commercial Bank and Equity Bank.

Fraudulent withdrawals and other illegal transactions at Imperial Bank amounted to more than 34 billion shillings ($333 million) over 13 years, the receiver said.